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O ver the past decade, the Japanese
fashion chain Uniqlo has become
among the most successful retailers in
the world. Its success is due in large part
to the fact that it has found a way to sell
basic stuff that is not only affordable but
also stylish and durable. And there's
something else that makes Uniqlo dis-
tinctive: it hires a lot of people, and
spends a lot of time training them.
When the company opened its flagship
Fifth Avenue store, last fall, it hired six
hundred and fifty people, and pledged
to have four hundred people working
there at anyone time. This is not the
way most retailers do business. The
general dogma in recent decades has
been that, in order to compete on price,
you need to keep labor costs down-
hiring as few workers as you can get
away with and paying them as little as
possible. Although leanness is generally
a good thing in business, too much cost-
cutting turns out to be a bad strategy,
not only for workers and customers but
also for businesses themselves.
A recent Harvard Business Review
study by Zeynep Ton, an M.I.T. pro-
fessor, looked at four low-price retailers:
Costco, Trader Joe's, the convenience-
store chain QyikTrip, and a Spanish
supermarket chain called Mercadona.
These companies have much higher
labor costs than their competitors. They
pay their employees more; they have
more full-time workers and more sales-
people on the floor; and they invest
more in training them. (At QyikTrip,
even part-time employees get forty
hours of training.) Not surprisingly,
these stores are better places to work.
What's more surprising is that they are
more profitable than most of their com-
petitors and have more sales per em-
ployee and per square foot.
The big challenge for any retailer is
to make sure that the people coming
into the store actually buy stuff, and re-
search suggests that not scrimping on
payroll is crucial. In a study published
at the Wharton School, Marshall
Fisher, Jayanth Krishnan, and Serguei
N etessine looked at detailed sales data
from a retailer with more than five
hundred stores, and found that every
dollar in additional payroll led to some-
where between four and twenty-eight
dollars in new sales. Stores that were
understaffed to begin with benefitted
more, stores that were close to fully
staffed benefitted less, but, in all cases,
spending more on workers led to
higher sales. A study last year of a big
apparel chain found that increasing the
number of people working in stores led
to a significant increase in sales at those
stores.
The reasons for this aren't hard to di-
vine. As Fisher, Krishnan, and Netes-
sine show, customers' needs are pretty
simple: they want to be able to find
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products, and helpful salespeople, eas-
ily; and they want to avoid long check-
out lines. For a well-staffed store, that's
no problem, but if you don't have
enough people on the floor, or if they
aren't well trained, customers can easily
lose patience. One of the biggest prob-
lems retailers have is what is called a
"phantom stock-out." That's when a
product is in the store but can't be
found. Worker-friendly retailers with
more employees have fewer phantom
stock-outs, which leads to more sales.
And happy workers tend to stick
around, which saves the costs associated
with employee turnover, like hiring and
training.
It's true that, at some point, hiring
more people yields diminishing returns.
And, of course, if you have a lousy
product selection, a bigger payroll won't
help much. But there's a strong case to
be made that corporate Americà s fetish
for cost-cutting has gone too far. Some
of the highest-profile retailers to flop in
recent years were companies that made
a big deal of slashing payroll costs. In
2007, Circuit City fired more than
three thousand of its most experienced
salesmen, replacing them with newer
workers whom it could pay less. Its sales
dropped, and it was bankrupt within a
couple of years. When Bob Nardelli
took over Home Depot, in 2000, he re-
duced the number of salespeople on the
floor and turned many full-time jobs
into part-time ones. In the process, he
turned Home Depot stores into cavern-
ous wastelands, with customers wan-
dering around dejectedly trying to find
an aproned employee, only to discover
that he had no useful advice to offer.
The company's customer-service rat-
ings plummeted, and its sales growth
stalled.
If investing in employees yields such
big dividends, why don't more retailers
do it? Partly, it's a matter of incentives:
store managers are typically evaluated
on their payroll costs. Moreover, the
benefits of keeping payroll costs low are
immediate and easy to see, whereas the
benefits of hiring more people are long-
term and harder to track. On top of this,
keeping a large staff runs counter to one
of the most important trends in retail:
making customers do more of the work.
We're all familiar with the phenomenon
of outsourcing work to foreign compa-
nies. But there's also been a great deal of
outsourcing work to customers. Often
enough, this is a good thing: the self-
service layout of a modern supermarket
offers more freedom than an old-fash-
ioned grocery counter, where you have
to ask for things. It seems easier to
pump your own gas at a gas station than
to wait for an attendant, and people are
increasingly happy to use a self-service
kiosk at an airport instead of standing
in line for a check-in agent. But you can
only outsource so much work before
alienating your customers. And in re-
tail stinting on employees doesn't actu-
ally save you money. It just gets you less
for less.
-James Surowiecki
THE NEW YORKER, MARCH 26, 2012 47